Tata Steel has completed the sale of its long products business to Greybull Capital, in a deal that will preserve 4,400 UK jobs and revive the British Steel name, the Guardian reports this week. Well, that’s part of Tata U.K. that will survive, at least for a while.
Greybull repeatedly states that it’s a financial firm that makes long-term investments in private companies and has variously been described as a turnaround specialist and a private equity house. In reality, Greybull has a checkered history. Read more
The U.S. Census Bureau reports that construction spending fell 1.8% in April compared to the previous month. It rose 4.5% compared to April 2015. Construction spending in the first four months of 2016 is still 8.7% higher than for the same period one year ago.
Commercial construction spending fell 3.7% to $72.0 billion, but remains 6.8% above April of 2015. Educational construction spending was down 2.4% to $88.4 billion, still 5.4% greater than April a year ago. Manufacturing construction dropped 1.4% to $76.3 billion, 9.8% below April, 2015.
Labor Still in Demand
Our Construction MMI for June was no outlier, falling 9.6% to 66 from 73 in May. As we noted in May, a lack of skilled labor continues to plague U.S. construction. Overall job creation was up 2% in the U.S. between March and April, but it was up 4.7% for the construction industry and 2.5% for the architectural and engineering services sector. Those are healthy increases, but many projects still need skilled laborers who are in short supply and, despite increasing spending and decent demand for new homes and commercial construction, many projects are idled while waiting for crews.
Nine out of 10 contractors (89%) say they are having trouble filling open positions, according to a 2015 survey conducted by the Associated General Contractors of America. The shortages are most acute among skilled, and generally well-paid, craft workers such as carpenters, electricians, sheet-metal and concrete installers, as well as among construction managers and supervisors.
That’s why it was so odd for investment bank Goldman Sachsto note that “labor shortages may not be to blame” for what it called a spate of mediocre construction activity. All of the surveys we’ve seen beg to differ.
Metals Corrected in May
All of the constituent elements of our construction sub-index save scrap and fuel surcharges fell this month, as the construction metals felt the pinch of a broad correction that affected nearly every metals market in May. The U.S. dollar unexpectedly strengthened last month as talk of more Federal Reserve interest rate increases than expected coming this year took hold.
The macro factors that caused raw steels, copper and aluminum to fall this month were acutely felt in construction markets. Ratings agency Moody’s also said this week, in a China Daily report, that it expects the massive Chinese construction industry to continue to experience sluggish growth for the rest of this year and much of next.
“The industry will see low-single-digit revenue increase, similar to the 2% recorded in 2015 and down from 8.7% in 2014,” said Lu Chenyi, a Moody’s vice president and senior analyst, citing construction companies’ large order backlogs and long lead times for project completion.
The construction of both residential and commercial buildings will likely be sluggish during the coming 12 to 18 months due to the economic slowdown, moderating property-sales growth and high level of developed but unsold properties in lower-tier cities, Lu said.
The U.S. market will likely recover from its drop this month, but we can’t really expect double-digit growth here at home, either, with the labor situation. So it would appear that, at least in the world’s largest markets, tepid growth is the best that can be expected.
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China’s Hebei Iron and Steel Group, its biggest steelmaker by output, accused the United States of breaching World Trade Organization rules and said “U.S. protectionism” is damaging the world steel trade, in a statement posted on its website on Thursday.
The U.S. International Trade Commission, a week ago launched a probe into Chinese steel mills accused by United States Steel Corp. of stealing the production setup and recipe for a strong-selling automotive steel alloy and also conspiracy to fix prices.
“The protectionist behavior taken by the U.S. based on purely groundless accusations by U.S. Steel has seriously broken the WTO rules, distorted the normal world steel trade and damaged the essential interests of Chinese steel mills and U.S. steel users,” the statement said.
A previous Chinese hack of U.S. Steel and other companies resulted in indictments of Chinese military personnel in 2014. Then-Attorney General Eric Holder said, at the time, “This is a case alleging economic espionage by members of the Chinese military and represents the first ever charges against a state actor for this type of hacking. The range of trade secrets and other sensitive business information stolen in this case is significant and demands an aggressive response. Success in the global market place should be based solely on a company’s ability to innovate and compete, not on a sponsor government’s ability to spy and steal business secrets. This Administration will not tolerate actions by any nation that seeks to illegally sabotage American companies and undermine the integrity of fair competition in the operation of the free market.”
Scrap companies often get a bad rap. Yet some of the more sophisticated ones clearly provide tremendous value by elevating the procurement function within manufacturers.
Separated scrap. Photo: United Scrap Metal.
We recently caught up with Brad Serlin, President of United Scrap Metal Inc., and toured their Cicero, Ill., operation to better understand what makes a “best in class” scrap recycling program and why most manufacturing organizations need to formally manage these types of programs. Read more
A report in the Guardian quotes “sources close to Tata Steel” has claimed that Tata, even as it was going through the motions of the sale process, “was evaluating” the performance of its U.K. operations and the package of financial support that the U.K. government offered.
This steel plant at Port Talbot in South Wales, U.K., might stay in Tata’s hands if the owner can work out a similar pension fix to what other suitors are offering. Source: Adobe Stock/Petert2
Hit by cheap Chinese steel imports, as elsewhere in the world, in addition to supply glut, Britain’s steel industry has been in the doldrums for some time now. In March this year, Tata Steel announced that it wanted to sell its remaining plants in the country, putting over 11,000 jobs at risk. Read more
In percentage terms, those are big moves in a short period of time, but frankly at Steel-Insight, we find this irrelevant. In context, the recent moves don’t hold a candle to the fundamental shift in the product’s shift from $200/mt in 2011 to the current level. Now that was a generational change.
Iron Ore Monthly Average Prices ($/Metric Ton cfr China 62% Fe fines)
In terms of the monthly average price, which is what many steelmakers’ costs outside of China are linked to, the moves have been relatively small from around the low $40s to the high $50s. For steelmakers, even that $20/mt change in iron ore costs actually only add $30/mt to their total cost structure (around 1.5 mt of iron ore is required to make a tonne of steel).
Meanwhile, North American steelmakers have seen steel prices rise from $360/short ton for HR coil at the beginning of the year to current levels of $620/short ton. The fact that ore costs may have gone up $30/mt in that period is pocket change.
Not a Long-Term Concern
Moreover, the rapid change in prices has clearly been a short-term event. It was driven by a modest improvement in steel market demand in China. However, this was compounded by the massive liquidity boost to the Chinese market that was seen in Q1 this year that the Chinese government injected in order to stave off an excessive slowdown. That allowed steelmakers, which had been forced to idle in late 2015 due to lack of credit, to secure iron ore and return to steelmaking. Their buying drove modest gains in iron ore pricing.
However, the market was turbo-charged by retail Chinese investors. Responding to the rising price and also public statements from Chinese political leadership, vast amounts of speculative finance surged into iron ore futures in China. In one day in April, the turnover in volume on the Dalian iron ore contract exceeded the combined turnover of all equities trading in China with pricing up 19%. Upon tightening access to trading, this liquidity ebbed as did the price. The most volatile pricing moves were not, therefore, an indication of fundamental demand.
Fundamentally, iron ore is going to be boring for the next five-plus years. There is simply too much supply available to a steel industry where global demand is not growing. We expect iron ore prices to hit the $30s/mt for a period in the second half of this year and stay there for an extended period, with pricing moving in the $30-60/mt range for the next five years, i.e. exactly the trading range that they have been in the for the last year.
That will mean more pain for global iron ore miners. For steelmakers and steel buyers, however? A long period of low prices will be welcome….and boring.
Steel-Insight is a steel industry price-forecasting publishing company, based in Toronto. James May, the firm’s managing director, has been a steel industry analyst for 15 years and advises some of the major global steel trading companies, steel producers and steel consumers on the outlook for steel pricing and industry trends. For more information, visit www.steel-insight.com.
This week, we asked if cheap Chinese steel imports are really that bad for the U.S.? After all, if Beijing and China’s regional governments are subsidizing steel production exported to the U.S. to the tune of 522% for cold-rolled and 451% for corrosion-resistant, aren’t U.S. manufacturers gaining a huge cost advantage on the finished products they ship back to the People’s Republic? Or even sell domestically?
U.S. Producers certainly don’t see it that way. Neither do steel producers in most of the developed world, save China. 12 Steel associations from the Americas and Europe released another strongly worded letter to governments around the world, lamenting Chinese overproduction. Just look at those tariffs! The steel associations really mean business this time!
Nice job on the ditch, USA! I’m China, I’m here to fill it back in. Source: Adobe Stock/Kara.
China, of course, doesn’t see it this way at all and has previously said, through its Ministry of Commerce, that its steel industry is merely “export competitive.” It’s certainly a novel defense, but it would also be the equivalent of Tom Brady saying his footballs are only “deflation competitive” without dealing with why they are so. Or Russia saying Crimea is “annexation competitive” without saying why it should stop being a part of Ukraine and start becoming a part of the federation.
What is Protectionism?
Still, U.S. regulators like the Commerce Department and the International Trade Administration may want to tone down their heavy anti-dumping and countervailing duties decisions as 522% and 451% is an awful lot of anti-dumping and countervailing duties and the extreme outlier positions that Commerce has staked out could garner sympathy for China in front of a future World Trade Organization court. Read more
The U.S. International Trade Commission has officially started an inquiry into the hacking and theft of trade secrets from U.S. Steel Corp., allegedly by Chinese hackers. China’s largest steel-producing province has ordered production cuts due to air pollution.
ITC Launches Hacking Probe
U.S. regulators on Thursday officially launched an investigation into complaints by United States Steel Corp. that Chinese competitors stole its secrets and fixed prices, in the latest trade spat between the two countries. The International Trade Commission said in a statement that it has not made any decisions on the merits of the case.
The commission identified 40 Chinese steel makers and distribution subsidiaries as respondents, including Baosteel Group, Hebei Iron and Steel Group, Wuhan Iron and Steel Co Ltd., Maanshan Iron and Steel Group, Anshan Iron and Steel Group and Jiangsu Shagang Group.
U.S. Steel has accused Chinese hackers of stealing proprietary data to manufacture and sell dual-phase 980, a high-strength automotive steel alloy.
Tangshan Orders Steel Cuts
China’s top steelmaking city of Tangshan has ordered mills in and near the area to cut production for five days from Friday to ease air pollution, according to a notice from the local government.
The sale process of Tata Steel U.K. continues and tensions between Iran and Saudi Arabia continue to plague any OPEC production deal.
Cameron Insists Tata Steel UK is Getting Offers
Tata Steel has received a number of serious offers for its businesses in Britain, Prime Minister David Cameron said on Wednesday as steelworkers marched past Downing Street to put pressure on the government to get a deal.
The U.K. steel industry has been hit by cheap Chinese imports, high energy costs and a global supply glut and in March Tata said it wanted to sell its remaining plants in the country, putting 15,000 jobs at risk.
Iran-Saudi Conflict Still Plagues Any OPEC Deal
The Organization of Petroleum Exporting Countries‘ thorniest dilemma of the past year — at least the one purely about oil — is about to disappear. Less than six months after the lifting of Western sanctions, Iran is close to regaining normal oil export volumes, adding extra barrels to the market in an unexpectedly smooth way that was helped by supply disruptions from Canada to Nigeria.
The Commerce Department has delivered a final determination that imports of corrosion-resistant steel from China, India, Italy, South Korea, and Taiwan were illegally dumped in the U.S. The investigation found that countervailable subsidization of imports of corrosion-resistant steel products from China, India, Italy and South Korea occurred and that there were actually no countervailable subsidies of imports of corrosion-resistant steel from Taiwan.